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Specialized equipment manufacturer for infrastructure and vegetation management Alamo Group (NYSE:ALG) missed analysts' expectations in Q2 CY2024, with revenue down 5.5% year on year to $416.3 million. It made a GAAP profit of $2.35 per share, down from its profit of $3.03 per share in the same quarter last year.
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Alamo (ALG) Q2 CY2024 Highlights:
- Revenue: $416.3 million vs analyst estimates of $428.6 million (2.9% miss)
- EPS: $2.35 vs analyst expectations of $2.72 (13.5% miss)
- Gross Margin (GAAP): 26%, down from 26.8% in the same quarter last year
- Market Capitalization: $2.30 billion
Agricultural MachineryAgricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Thankfully, Alamo's 9.4% annualized revenue growth over the last five years was solid. This shows it was successful in expanding, a good starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Alamo's annualized revenue growth of 8.2% over the last two years is below its five-year trend, but we still think the results were respectable.
This quarter, Alamo missed Wall Street's estimates and reported a rather uninspiring 5.5% year-on-year revenue decline, generating $416.3 million of revenue. Looking ahead, Wall Street expects sales to grow 5.2% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Alamo has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of well-managed operations if they're high when gross margins are low.
Analyzing the trend in its profitability, Alamo's annual operating margin rose by 5.4 percentage points over the last five years, as its sales growth gave it immense operating leverage.
This quarter, Alamo generated an operating profit margin of 21.7%, up 9.3 percentage points year on year. This increase was solid, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Alamo's EPS grew at a solid 11.4% compounded annual growth rate over the last five years, higher than its 9.4% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into the nuances of Alamo's earnings can give us a better understanding of its performance. As we mentioned earlier, Alamo's operating margin expanded by 5.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Alamo, its two-year annual EPS growth of 22.6% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Alamo reported EPS at $2.35, down from $3.03 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Alamo to grow its earnings. Analysts are projecting its EPS of $10.56 in the last year to climb by 14.7% to $12.11.
Key Takeaways from Alamo's Q2 Results We struggled to find many strong positives in these results. Its revenue unfortunately missed and its EPS fell short of Wall Street's estimates. Overall, this was a mediocre quarter for Alamo. The stock remained flat at $192.72 immediately after reporting.
